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HMRC internal manual

Capital Gains Manual

Computation: VAT


Where the asset is acquired as an asset of a trade and the Value Added Tax (VAT) borne on it is part of the trader’s deductible ‘input tax’, see BIM31520, the cost of the asset for capital gains purposes should be the cost exclusive of VAT. Otherwise, the cost of the asset for Capital Gains Tax purposes should be the cost inclusive of any VAT borne on the purchase.

In some circumstances, e.g. the Capital Goods Scheme, the VAT is adjusted during the period of ownership of the asset. Where this applies only the adjusted amount of VAT should be included in the cost of the asset for CG purposes.


Where VAT is charged on the disposal of a chargeable asset, the gain is to be computed by reference to the proceeds of disposal exclusive of VAT. If VAT is suffered on the expenses of disposal and this is available for set-off in the vendor’s VAT account, the expense exclusive of VAT is to be deducted in computing the gain. If no set-off is available the expense inclusive of VAT is to be allowed.